An increase in marginal cost causes a profit-maximizing, monopolistically competitive firm to:
Question 8 options:
keep price and output the same.
raise price and decrease output.
lower price and increase output.
raise price and raise output.
Answer
lower price and increase output.Explanation
when this happens, then each marginal unit is costing more than the revenue it brings in, and the firm will increase its profits by reducing the quantity ofoutput until MR = MC. The best way and mostly used strategy by such firms to ensure there is minimal loss, is ensuring that in order to minimize losses by producing that quantity where marginal revenue equals marginal cost,
